What makes housing levy susceptible to corruption

The demand for houses in Nairobi has pushed residential owners to build storey buildings to help bridge the deficit. [Phillip Orwa, Standard]
Proper housing is a necessity for all of us. But when the national government first announced its housing policy and specifically the Housing Levy, I feared for the employee and the employer.

Somebody was to fund this project. The more worrying aspect of this venture is that workers and businesses are levied first, then the housing comes later. Such a model is susceptible to corruption.

At that point, it is apparent that the government was ill-advised and that somebody at Treasury or in charge of housing was clueless on how such projects should be financed or is up to no good.

However, this model of collecting money from the citizens and then looking for something to do is prevalent in our country and needs a thorough review.

We are in a situation where a government department wakes up one morning and forces a levy on individuals and businesses.

Let me give an example.

There is a levy called Catering Levy that is forced on small hotels, but those facilities get nothing in return year-in-year-out, and in some cases, the levy is higher than the rent payable by the small eatery.

Imagine small hotels paying catering levy of Sh10,000 per month for a whole year! This is effectively an additional tax of Sh120,000 in a year. Where does the money go?

It appears that we even lost the original meaning of a levy; and that levying means collecting money in exchange for a defined benefit to the individual levied.

NSSF is a levy because you will get your money back on retirement; NHIF is a levy because your treatment bill is partly covered, and this is why this Housing Levy does not qualify to be a levy.

It is more of a tax than a levy. My guess is that the government is using the word levy and not tax to enable it to charge both employee and employer.

When we got devolution, maybe we should have made it clear that housing and industrialisation needed to be devolved because unemployment and housing problems are more pronounced at the county level.

Population pressure

In fact, many of us are not housed at the county level.

Housing and industrialising counties diffuse population pressure within our cities and check’s growth of slums.

In any case, housing problems are more pronounced in counties than cities.

Therefore, let us decentralise housing and then use central government to underwrite the finance required.

The central and county governments must re-staff Treasury. I have taught finance many years and finance training emphasizes on the cost of capital - that is the cost of money that you pump into your project must leave good returns to investors. Secondly, the teaching in business school is that you look for a viable project and then look for money.

Our model is that we look for money then look for a project, and this might explain cost overruns and corruption experienced in government projects.

In this housing project, what the government should do is to borrow money, build the houses and service their loan from the levy or taxation.

Let the government forget about this housing levy because it is going to kill many businesses and render many of us jobless.

It is difficult for a business to continuously carry a cost that is not generating revenue.

There is nothing damaging to the profitability of business like incurring an expenditure that earns nothing in return.

Forget about the Central Organisation of Trade Unions (Cotu) and its 15 per cent salary increase because this levy if implemented exposes many businesses that are struggling to losses and cash-flow problem. Let me explain why.

A small business employing 20 workers on a salary of Sh40,000 each have a total wage bill of 800,000 per month and that business will have to pay a levy of Sh12,000 per month, totalling to Sh120,000 a year.

It means that in any month, the business fails to sell this amount of goods and services it will have to borrow to pay this levy, this accumulates debt attract financing cost earns nothing to the business.

In addition, the purchasing power of the workers will be reduced.

Therefore, the government is not looking at the total viability of the project because they are ignoring the effect of this levy on business and purchasing power of employees.

Similar projects were done around 1970 to 1980 and there was no levy, perhaps we revisit the housing financing models during those periods.

Closing business means less tax for the government.

The result is that the government is destabilising its own policies through endless levies.

The good decision does not translate into the waste of resources. This decision to build houses by the Government might adversely impact on the activity of those who develop houses privately.

This is what happened to private secondary schools in the case of the 100 per cent transition from primary school to be secondary.

Substantial investment in private secondary schools have gone to waste and the quality of education in a number of government schools compromised due to a large number of students admitted.

One wonders whether the benefits of these decisions cover their benefits.

-The writer teaches at the University of Nairobi

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Housing Fund LevyCorruptionAffordable Housing